Charts That Caught My Eye: MS Sees Explosive Data Growth

From Morgan Stanley’s bold data center forecast to new inflation risks tied to tariff shifts, this week’s charts unpack forces reshaping the global economy. One trend in particular might redefine tech infrastructure for the next decade.

Morgan Stanley’s global TMT team projects that global data center capacity will grow at a compound annual rate of 23% through 2030. The United States is expected to account for 60% of that growth, while countries like Saudi Arabia and the UAE are set to expand their installed capacity by 6–7 times.

While Nvidia has recently resumed sales of its H20 chips to China, domestic Chinese AI chipmakers still boast a strong long-term growth outlook. According to Bernstein, from 2023 to 2027, the compound annual growth rate (CAGR) of Chinese domestic AI chip suppliers will reach 112%, far exceeding the 36% projected for foreign competitors. Local chipmakers’ market share in China is expected to grow from 17% in 2023 to 55% by 2027.

Turning to U.S. inflation, the Trump administration’s retaliatory tariffs are set to expire on August 1. What impact could they have?

Morgan Stanley economists noted that product categories heavily affected by tariffs—such as appliances, furniture, electronics, auto parts, and equipment—have already shown signs of reacceleration in June CPI data. They believe core goods inflation will rise further, as some sectors (like new cars) have yet to fully reflect tariff effects. Under Morgan Stanley’s base case, the tariffs would raise the core PCE price index by 60 basis points.

Bank of America estimates that reinstating retaliatory tariffs on August 1 could lift the U.S. effective tariff rate by 5%, implying an upside risk of around 30 basis points to inflation.

According to a New York Fed survey, about half of U.S. manufacturers absorbed at least 50% of tariff costs, rather than passing them to consumers. While this helped contain short-term inflation, it squeezed profit margins—essentially acting as a stealth tax, comparable to the largest corporate tax hike since the 1980s.

There is also a notable correlation between fertilizer prices and U.S. food CPI, with fertilizer typically leading by about six months. Since late 2024, fertilizer prices have been rising again, suggesting upward pressure on food inflation in the coming months.

📈 Stock Market Charts

So far in Q2 earnings season, 87% of S&P 500 companies have beaten profit expectations—the strongest performance in four years.

Mega-cap U.S. tech stocks have the highest international exposure among major sectors, positioning them to benefit from a weaker dollar. In 2024, the “Magnificent Seven” generated 49% of their revenue from outside the U.S., versus 28% for the S&P 500 overall. This partly explains their continued strength.

Over the past two centuries, different sectors have dominated U.S. markets for decades at a time: from finance and real estate in the early 1800s, to railroads in the late 19th century, to energy and materials in the mid-20th. Today’s tech and communication sectors, with a combined market cap share over 40%, mirror the scale once seen in energy’s 1950s heyday.

This suggests that dominance by a single "super sector" during major technological or industrial shifts is a recurring pattern, not an anomaly.

🔄 Index Inclusion Effects: U.S. vs China

There is a notable divergence in how stocks behave after index inclusion in the U.S. versus China. Historically, newly added stocks to the S&P 500 tend to outperform the broader index, while stocks added to the CSI 300 tend to underperform.

UBS believes this reflects a “flow effect” in the U.S. due to consistent passive fund inflows, while “sell-the-news” behavior dominates in China. As China’s ETF market matures, UBS expects passive flows to play a larger role in A-share index dynamics, eventually resembling the U.S. pattern.

📉 Do ETFs Really Lower Volatility?

Many believe ETF growth reduces market volatility. But 34 years of U.S. stock data challenge that narrative. Between 2010–2024, a period of rapid ETF expansion, the average annualized volatility of the S&P 500 was 0.16—only marginally lower than 0.17 during the early ETF years (1991–2009). No structural volatility decline was observed.

Stablecoins: Far from Stable?

Stablecoins frequently deviate from their $1 peg—even those backed by fiat reserves. Some algorithmic stablecoins exhibit more volatility than Bitcoin, making them far less stable than traditional bank deposits and questionable as reliable payment methods.

🚗 China EV Price War

China’s auto price war is intensifying, especially among domestic brands. Among the 30 best-selling models since 2023, price cuts have exceeded 40% for some models, such as BYD’s Qin PLUS DM-i. Foreign brands like Volkswagen are also cutting prices, though more modestly.

One notable exception is Tesla’s Model Y, whose 2025 price is higher than two years ago.

🛒 Amazon vs Walmart Pricing Strategies

In H1 2025, Amazon diverged from peers in its pricing strategy: raising average prices by 6% on low-cost items, while Walmart cut prices in the same category.

Analysts suggest Amazon is trying to boost margins on low-profit daily goods, where shipping costs are high, while Walmart is focused on preserving its low-price image.

However, for higher-priced goods, all major retailers, including Amazon, have enacted price cuts.